1.0500 is one of my worry levels for my euro longs
Further hair loss for me is back on the cards as the euro messes around at the 1.0500 level. It's been a significant level and marks a strong area of support from there down to 1.0300, as I've highlighted previously.
EURUSD H4 chart
We've finally put a proper break in of the 61.8 fib of the Jan swing higher, and we have a sign that there's further downside to come as the level has now formed as resistance.
EURUSD 15m chart
In the short-term, staying below there, and then confirming a hold below 1.0500 would mean we'll be heading further south. Considering my longs, that's obviously not what I want to see. So, I need to have a think about what's going on and what's behind these moves.
On the face of it, the only real driver from the EUR side is the French elections, with a dose of Greece thrown in. The data is largely holding up, so fundamentally there's no real change there.
The USD side is where things get a bit weirder. Fundamentally the US is doing ok, we've had some good data out, data that would be a red flag to a Fed hiker bull. We've also still got some high hopes for Trump and his tax plan, yet the buck has shrugged it all off and failed to rally significantly. It's also shackling itself to bond yields. The price moves go in my favour but the reasons why don't. It's a strange one.
The other driver that's beginning to show itself more and more is yen buying. Given the time of year (albeit a tad earlier than usual) this may be the start of the repatriation season for Japanese firms. The impact of this hasn't been overly large in recent years but as the fortunes of Japanese firms has improved, so will the repat moves increase. From prior memory, we used to see such moves in and around the last couple of weeks of March so it is quite early to see that happening now, if that's what it is at all. Certainly the trading desks have been noting that a lot of these moves are being yen led, and Mr P. has been all over them recently too.
Overall, and simplifying all the info as much as possible, so that I don't get tied up in knots about the analysis and reasons why, I don't see a reason to change my positions. My biggest worry is the French elections because the market could view greater risk from it than it would if Brexit and Trump hadn't happened. The main part of my reasons for going long, EZ inflation, remains strong so it's just a waiting game there. The US is still a risk but the PA is showing that there's an unwillingness to push the price up.
Irrespective of whether I feel happy or not right now, the PA could always make or break me anyway. 1.0500 is just a comfort level, not a make or break level. That's still down at the low end of the 1.03/1.05 support range I've defined. Towards 1.0300 is where I will have a proper assessment of my trade and see whether I want to scale it back, keep it as is, or add to it if it moves below and towards parity.
I can no more control the price and the time frames than I can the Earth turning, so all I can do is identify the places where I can limit or ride out any pain. If the price forces me out prematurely, I'm prepared for that and I know what my loss will be. Then I'll move on to the next trade.
